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April 19, 1999 02:00 AM

NYLON, ACETAL PRICES DROPPING IN EARLY '99

Frank Esposito
Senior Staff Reporter
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    Overcapacity and increased competition have lowered nylon prices since late 1998, while low-priced Asian imports have had the same effect on acetal prices.

    Nylon 6 prices have dropped an average of 10 cents per pound, while nylon 6/6 prices are down an average of 5 cents per pound, according to buyers and producers contacted recently.

    Although both materials have seen their prices reduced by an abundance of caprolactam feedstock, resin supply has been more abundant in nylon 6, partially because of a 30 million pound expansion recently brought on by DSM Engineering Plastics in Augusta, Ga.

    DSM nylon product manager George Relyea said increased competition among nylon producers has played more of a role in the price drop than overcapacity or caprolactam supply.

    ``There's not really oversupply,'' Relyea said. ``We've brought on capacity and been more aggressive, but we're still seeing strong sales, especially in automotive. We're getting five or six new auto [application] approvals every month.''

    North American nylon sales for January were up 9.3 percent from the same month in 1999, according to the Society of the Plastics Industry Inc. in Washington. That boost included an 11 percent jump in automotive end uses, which make up about one-third of all nylon resin sales.

    The North American nylon market, dominated by DuPont of Wilmington, Del., is expected to consume almost 1.4 billion pounds of material in 2000, making it the region's largest single engineering thermoplastic.

    Austin Peppin, an industry analyst with Peppin & Associates Inc. in Chesterfield, Mo., said market perception also may be influencing the price drop.

    ``Nylon makers who are concerned 1999 may be a tougher year than they thought might be trying to lock in business early,'' Peppin said. ``This may be an overreaction, but there has been some price slippage, particularly in the automotive market.''

    ``The prime reason is the competitive situation,'' he added. ``DSM's start-up is also playing a role, and there are signs of some weakening in caprolactam, which had been tight.''

    The pricing situation could turn around later in the year as supplies tighten, Peppin said.

    In acetal, prices have dipped an average of 15 cents per pound as lower-priced Asian exports have reached North America.

    ``Since the Asian market crashed, [Asian companies] have been desperate for foreign exchange,'' a Pennsylvania-based acetal buyer said. ``Now they're coming to North America and setting the tone for the market.''

    ``There's been pressure on pricing for some time,'' said Shawn Gorman, acetal business director for Ticona, the Summit, N.J.-based firm that controls half of the North American market. ``Asian exports are the main difference in the market. The other dynamics are the same as they've always been.''

    Gorman added Ticona has seen its prices drop less than 5 percent, since the firm focuses on more specialized high-end grades. Most buyers contacted recently reported a drop of about 10 percent.

    Several buyers said the availability of Asian acetal has dramatically increased in recent months, allowing prices to drop as low as $1 per pound in some cases.

    Jay Kim, acetal product manager for Korea Engineering Plastics, said that although his company has reduced prices for ``select strategic accounts,'' price erosion has not been as widespread as buyers believe.

    ``Supply and demand has not shifted,'' Kim said. ``Capacity has not surpassed demand.''

    Korea Engineering Plastics is a division of New York-based Hyosung America, the North American business unit of South Korea's Hyosung Group. Industry sources ranked the firm as North America's largest acetal importer, capturing at least 2 percent of the overall domestic market since it began doing business in North America in the early 1990s.

    Kim added that some smaller Asian acetal makers have lowered prices in an attempt to gain entry to the North American market, but he doesn't believe those firms have had as much of an impact on the market as some believe.

    ``A lot of times people tend to group all importers together, but in today's competitive market, you have to think in the larger sense of things,'' Kim said. ``Our list prices are still comparable to those of domestic players.''

    Peppin said most of the acetal erosion has been in basic commodity grades, with those moves dragging down prices for more highly engineered grades as well.

    ``The Korean producers were stuck with material when the market tumbled so they've attempted to sell here for bargain basement prices,'' he said. ``But when Southeast Asia turns around and the market dries up, [North American] producers should be able to turn prices around a bit.''

    Ticona's Gorman agreed the market could enjoy an upswing when Asian demand picks up. In spite of the price drop, Gorman said he expects growth rates to reach the 4-5 percent mark again in 1999. The industry's annual growth rate has been in that range for five years.

    The North American acetal market is expected to consume almost 260 million pounds of material next year. Ticona completed a small capacity addition late last year in Bishop, Texas, while third-ranked BASF Corp. of Mount Olive, N.J., is slated to raise capacity later this year.

    Automotive uses continue to dominate the North American acetal market, consuming about 30 percent of all sales.

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